TWN Briefings 5

Third World Network for Cancun

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TRADE AND CO!ET"T"ON !O#"C$ "N T%E WTO
B& Cecilia Oh
'. Background
In Cancun, one of the most important decisions for Ministers will be whether or not to launch negotiations on
new WTO agreements on investment, competition, transparency in government procurement, trade facilitation.
These four new issues are being pushed primarily by the !", aided by the other #uad countries $%apan,
Canada and the "&' in varying degrees of force depending on the specific issue of their preference. (lthough
most developing country governments have stated their ob)ections against the launch of negotiations on the
new issues, there are fears these governments may be pressured into agreement at Cancun. *rior to, and
during, the +oha Ministerial Conference, manipulative negotiating tactics, undemocratic and non,transparent
decision,ma-ing processes were used to push and pressure developing countries into a grudging acceptance of
an e.panded WTO mandate on the new issues.
In the +oha Ministerial +eclaration, Ministers recogni/ed the case for a multilateral framewor- of
competition policy to enhance the contribution of competition policy to international trade and development
and agreed that negotiations will ta-e place after the fifth &ession of the Ministerial Conference on the basis
of a decision to be ta-en, by e.plicit consensus, at that &ession on modalities of negotiations $*aragraph 01'.
The +oha +eclaration also provides identical mandates for the other new issues.
(. The Doha )andate for trade and co)*etition *olic&
The +oha +eclaration implies that negotiations on competition policy would be launched after the Cancun
Ministerial Conference, sub)ect however, to an e.plicit consensus on the modalities of negotiations. This
convoluted te.t was the result of manipulative manouevres by the developed countries to insert language to
commit WTO Members to start negotiations on a multilateral competition framewor- $MC2', and the attempts
by developing countries to bloc- such language. In the final moments of the +oha Conference , on the
insistence of a number of developing countries , the Chair of the Conference provided a clarification of this
mandate. 3e said that the reference to e.plicit consensus on modalities meant that it was a pre,condition for
the commencement of negotiations and that any Member could prevent the start of negotiations by
withholding the consensus.
The +oha +eclaration further instructed WTO Members to focus on the clarification of si. elements4 i.e., core
principles of transparency, non,discrimination and procedural fairness, provisions on hardcore cartels,
modalities for voluntary cooperation and support for progressive reinforcement of competition institutions in
developing countries through capacity building $*aragraph 05'. This wor- would be underta-en in the
Wor-ing 6roup on the Interaction between Trade and Competition *olicy $established by the &ingapore
Ministerial Conference in 7889'. *aragraph 05 also e.plicitly re:uires that full account shall be ta-en of the
needs of developing and least,developed country participants and appropriate fle.ibility provided to address
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them. +eveloping countries have thus interpreted this to be the central focus of the clarification process,
which re:uires consideration of the need for appropriate fle.ibility for developing countries to develop and
implement trade and competition policies that meet their development needs and interests.

+. A**ro*riate for)s of co)*etition *olic& for de,elo*ing countries
Competition law and policy, in appropriate forms, are undoubtedly beneficial including for developing
countries. Whilst not denying the need for regulation to prevent abuse of monopoly power and other anti,
competitive practices, the -ey :uestion is what form of regulation is appropriate for developing country needs.
2rom a development perspective, there is a fundamental imperative to build, develop and re,inforce national
capacity, especially through domestic enterprises developing the scales and co,ordination necessary to enable
them to compete effectively in the face of large,scale intrusion in the domestic economy, as a result of
increasing liberalisation. +evelopment of domestic enterprise with sufficient economies of scale is crucial for
diffusion of technology and adaptation of imported technologies to domestic circumstances4 domestic
economic integration with spill,over effects in different sectors of economic and employment creation. This
re:uires protection from the ;free< and full force of the world mar-et for the time it ta-es for the local capacity
to build up. It also re:uires a vital role for the state, which has to play the role of nurturing and encouraging
domestic firms. Therefore, competition policy should complement national ob)ectives = and these ob)ectives
may range from a comprehensive national industrial policy, the promotion of certain vital sectors and the
enhancement of capacity of domestic entrepreneurs and farmers.
There are different approaches to competition policy and law. The !uropean and the "& models of
competition policy represent an approach $although with important differences' that puts competition policy at
the forefront and see-s to control and regulate anti,competitive and monopolistic behaviour of large
corporations. There are limitations of this approach, namely4 the over,arching focus on competition per se in
which other social and economic considerations are secondary and the failure to address areas in which
competition can be sub)ected, and promoted by, co,ordinated support for domestic industries to counter,
balance e.isting big companies.
The %apanese model of the 785>,78?>s, which locates competition policy within an industrial policy and the
overall national policy ob)ectives, provides an interesting contrast. The %apanese model of that time represents
a more fle.ible approach to competition policy, premised on the application of positive discrimination between
the needs of domestic enterprise for the development of a domestic economy against the mar-et access needs
of foreign enterprises in the local economy. Whilst the %apanese approach, in terms of economic theory and
development,friendly policy would appear to be one more suited to developing country needs, the pressure in
the WTO to negotiate a MC2 would force developing countries to adopt a diametrically opposite model of
competition policy.
With respect to the international economy, it would also be important to curb the mega,mergers and
ac:uisitions ta-ing place, which threaten the competitive position of local firms in developing countries.
World @an- analysis highlights the fact that the most important restraints on competition are policy barriers to
trade. &ubsidies and trade barriers in agriculture, and trade barriers in clothing and te.tiles, in the developed
countries have adverse effects on developing countries. In addition, anti,dumping actions have been a favoured
vehicle of the developed countries to restrict competition from developing countries< products. Aestrictive
business practices of large firms also hinder competition. Bet, calls to address these issues also do not find
favour with the promoters of a MC2 in the WTO.
The main pre,occupation of the proponents of the MC2 seems to be focused on the need for foreign firms to be
accorded national treatment. This implies that foreign firms and their products be given e:ual or even
better treatment than that given to local firms. It would curb the right of developing country governments to
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provide advantages to local firms, and local firms themselves may be restricted from practices, which are to
their advantage.
-. Clarification in the Working .rou*/ Di,ergence0 not consensus
The most insistent proponent of a multilateral competition framewor- is the !", which had been pushing for
inclusion of competition in the WTO since 7889. The !" has since lowered its ambitions in light of the
resistance to their original proposals for a competition agreement in the WTO, which did little to disguise their
mar-et access ob)ectives. Cevertheless, current !" proposals still create problems for the ma)ority of
developing countries. The proposals have the three main features4 7' an prohibition on hard core cartels
domestic legislation, 0' domestic competition laws shall be in conformity with the so,called core WTO
principles of non,discrimination, transparency and procedural fairness, and 1' the multilateral competition
framewor- is sub)ect to the dispute settlement system.
+iscussions in the Wor-ing 6roup reveal ma)or differences between the proponents of a multilateral
framewor- on competition policy, such as the !" and %apan, on one hand, and developing countries, including
India and some (frican countries, on the other. There is also some divergence in the views of the !" as
between and other developed countries, such as the "&, Canada and Dorea. The views and positions of WTO
Members on the elements identified for clarification clearly indicate that the clarification process has not
engendered a common understanding of the issues, much less any agreement, between them.
-.' Core *rinci*les 1 non1discri)ination0 trans*arenc& and *rocedural fairness *rinci*les
The proposal is for the principles of non,discrimination, transparency and procedural fairness principles to be
made binding on all Members, in that they should be applicable to the entirety of a competition law that is
adopted in a country. +eveloping countries have argued that these principles not universally applicable to all
issues, developed as they were in the conte.t of the original purpose of the 6(TT as an agreement to facilitate
reduction of barriers to international trade in goods. It is not self,evident that it is either appropriate or
desirable for these principles to be applied to competition policy.
Transparency The proposal is that this principle should cover all aspects of competition regime = from
legislation, rules and institutional structures to decision,ma-ing processes, including decisions on sectoral
e.clusions and e.emptions. This would represent an e.tension of the transparency re:uirement in the WTO
$6(TT, (rticle E' which is limited only to the publication of trade regulations and does not e.tend to
decision,ma-ing. There may even be a case for narrowing this remit, as the re:uirement for publication of
F)udicial decisions and administrative rulings of general applicationF, which would be unduly burdensome and
potentially unwor-able in the conte.t of competition policy. There is also a :uestioning of the insistence of the
proponents in e.cluding confidential information from transparency re:uirements, when such information will
increase effectiveness in enforcement.
Con,discrimination The current !" proposal is for the non,discrimination principle to be applicable only to de
jure discrimination4 i.e., applicable only to discrimination contained in the legislation, not to how legislation is
applied in individual cases. The e.tension of the national treatment principle to a possible MC2 may mean that
national treatment has to be ensured for foreign firms $and their goods and services' vis,G,vis local firms in
the domestic mar-et. &uch e:uality would only accentuate the ine:uality in mar-et outcomes, since local
firms are generally smaller than the large foreign firms and transnational corporations $TCCs'.
*rocedural fairness ( -ey component of this principle is the guarantee of rights of access to the system of
appeal, including right to reasoned final decision providing detailed grounds on which such decisions were
based, and the right of parties to be heard. The concern is that developing countries with dissimilar legal
systems to developed countries, or with insufficient resources will run the ris- of not meeting the re:uisite
standard of procedural fairness. Cotions of fundamental fairness differ among legal systems and political and
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legal cultures, and there is as yet no broad consensus on the meaning of procedural fairness in the conte.t of
competition law enforcement.
-.( %ard core cartels
The !" has insisted on the regulation of hard core cartels in the proposed multilateral competition framewor-,
and an obligation at national level for the enforcement of this prohibition. ( fundamental problem with this
proposal is that there is as yet no generally accepted definition of hard core cartels. Moreover, the assumption
that all hard core cartels have adverse impacts for all countries in all mar-ets at all stages of their development
is :uestioned. The e.perience of some (sian countries in which carteli/ation was, for a time, an element of
their industrial policies, challenges this assumption. In addition, nearly all developed countries have had
e.emptions $and continue to maintain some of them' on the basis of overriding economic or public interest
grounds, or allow co,operation by small and medium si/ed enterprises $&M!s' to countervail the mar-et power
of a dominant firm on the other side. (lthough the proponents envisage the possibility of allowing e.isting
$and future' e.emptions or e.clusions, there has not been sufficient clarity on the scope of such
e.emptionsHe.clusions. +eveloping countries may not be able to define ex ante in their laws, which cartels
would be e.empted or e.cluded, and these e.emptions and e.clusions may change according to economic and
socio,political e.igencies. ( multilateral obligation on hard core cartel prohibition will restrict the policy
fle.ibility of developing countries.
-.+ odalities for ,oluntar& coo*eration
In contrast to the other proposals for binding obligations, the proposals for modalities on co,operation $i.e.
among countries' are non,binding in nature. +eveloping countries have :uestioned the rationale of developed
countries in proposing merely voluntary modalities for cooperation, whilst insisting on binding obligations for
other aspects. @inding obligations in the WTO assumed in respect of domestic competition policy will clearly
weigh more heavily on the developing countries. In contrast, best endeavour clauses on co,operation serve
little purpose for developing countries, which would re:uire much assistance in their enforcement efforts.
-.- The s*ecial needs of de,elo*ing countries
+eveloping countries have raised the importance of their need to ta-e certain policy measures affecting trade
and competition, in line with their national developmental needs and ob)ectives. These include measures such
as those ta-enI $7' to maintain and enhance the competitiveness of domestic firms, particularly small firms,
including aspects of industrial policy related inter alia to financial assistance, subsidies, local content policy
and preferences in government procurement4 $0' for promoting developing country products and services in
developed countries, including reducing anti,competitive practices such as anti,dumping actions, subsidies
$especially in agriculture' and tariff and non,tariff barriers4 $1' at international level to curb anti,competitive
effects of intellectual property rights, the practices of TCCs, including the need to address the monopoly or
near monopoly in certain sectorsHareas of production and the anti,competitive effects of corporate mega,
mergers.
Other issues include $7' Measures to formulate the obligations and responsibilities of foreign firms to the host
country4 and $0' Measures to formulate the obligation of the home governments to ensure the foreign firms
fulfill their obligations vis,G,vis host countries.
5. O*tions at Cancun
In the preparations for the Cancun Ministerial Conference, three options for a decision on competition policy
were put forward by the Chair of the Wor-ing 6roup. The first option is to start negotiations on a binding
multilateral agreement on competition. The second is to have a decision on modalities for a framewor- for
cooperation in the WTO, without any binding rules $termed the soft agreement approach'. The third is for
the continuation of the clarification process in the Wor-ing 6roup. The first option is, of course, that preferred
by the proponents of the multilateral competition framewor-. The third option has been put forward by a
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number of developing countries, which have serious concerns regarding the implications of the MC2 in the
WTO.
Whilst the second option of a soft agreement appears to be a formulation designed to stri-e a compromise
between the first and the third options, it raises serious concerns that this may be a means by which the first
option is re,introduced through the bac- door. The history of 6(TT and WTO negotiations demonstrate that a
fairly innocuous proposal is often put forward as a means of gaining agreement, in order to push through the
real ob)ective of the proponents. The mandate for negotiating the TAI*& (greement, which developed
countries contrived to infer from the *unta del !ste Ministerial +eclaration of 78K9, is a good illustration.
2urthermore, if the real intention is to develop non,binding rules or guidelines, it would be far more
constructive to consider how the "C &et of *rinciples and Aules could be implemented in the conte.t of
"CCT(+, rather than duplicating the effort in the WTO.
2. Conclusion
There is not a convincing case for a multilateral set of binding rules to govern the competition policies and
laws of countries. There are )ustified grounds for serious concern if such an agreement were to be located
within the WTO, as it is li-ely to be s-ewed in a manner inappropriate for the developing country interests.
The !"Ls ob)ectives for a MC2 to provide ;effective opportunity for competition< in the local mar-et for
foreign firms, by applying FWTO core principlesF would affect the needed fle.ibility for developing countries
to define their appropriate model of competition policy and law. (s stated in a communication by the !", a
WTO (greement would help Floc- Members into these principlesF, thus Flimiting the possibility of formal
discriminatory treatment at a later point in timeF. 2or countries without a competition framewor-, acceptance
of the national treatment principle would thus deny them of the possibility of such measures in the future.
There is also the re:uirement for Fe.plicit consensusF on the modalities of negotiations. (s previously
mentioned, there is little common understanding on the elements clarified by the Wor-ing 6roup, much less an
e.plicit consensus on the modalities of negotiations.
+eveloping countries have e.plicitly voiced their ob)ections to the start of negotiations on a MC2. (t several
recent regional meetings $the (" Conference of (frican Ministers of Trade in Mauritius, the +ha-a
+eclaration Conference of Meast +eveloped Countries and the Meeting of (C* Ministers in @russels', Trade
Ministers of developing countries have clearly stated their unwillingness to start negotiations on agreements on
competition and other new issues in the WTO.
More recently, in a communication to the Ministerial Conference, the group of Meast,developed countries
$M+Cs' together with 75 other countries $@otswana, China, Cuba, !gypt, India, Indonesia, Denya, Malaysia,
Cigeria, *hilippines, Tan/ania, "ganda, Nene/uela, Oambia and Oimbabwe' have made clear that they are in
favour of a decision that would continue the clarification process in the Wor-ing 6roup, as opposed to the start
of negotiations, on the new issues. The communication from these J> developing countries also puts forward
proposed te.t, which sets forth these Members< views on the elements that re:uire further clarification with
regard to the new issues. The communication is a criticism of the process and content of the draft te.t of the
Cancun Ministerial +eclaration. The developing countries state that the parts of the draft Ministerial
+eclaration dealing with the new issues, whilst indicating 0 options for the decision on the new issues, still
provides a distorted view in that the (nne.es to the draft Ministerial +eclaration reflect only the views of
the proponents of the new issues. Thus, the communication see-s to provide a proper reflection of the views of
those Members which favour the continuation of the clarificatory process, by putting forward a listing of
issues that re:uire further clarification in the respective Wor-ing 6roups.
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